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Consultation response: Requiring payment of VAT and PAYE return liabilities by  Direct Debit

13 August, 2026

The ATT has responded to the HMRC consultation on requiring payment of VAT and PAYE return liabilities by Direct Debit ('the Consultation'). 

Currently, taxpayers can pay their VAT and PAYE liabilities using a range of payment methods, including Direct Debit. Under the proposals, businesses would be required to pay by Direct Debit, subject to certain exceptions.

In our response, we urge HMRC not to introduce mandatory Direct Debit payments at this time. Most taxpayers already pay the correct amount of tax on time, and we do not believe that mandation would deliver significant additional benefits for either HMRC or compliant taxpayers. 

Before considering mandatory Direct Debit, we believe HMRC should undertake further research into the causes of late payment, improve awareness and promotion of Direct Debit and address barriers to voluntary adoption. They could also consider whether targeted interventions for persistent late payers would provide a more proportionate solution than mandation for all VAT and PAYE taxpayers.

Our primary concerns include: 

  • The Consultation underestimates the complexity of business payment arrangements and the behavioural impacts that could arise if Direct Debit becomes mandatory.

  • Some businesses may respond by changing their behaviour in ways that undermine the policy objective. For example, they may delay filing returns until sufficient funds are available, while others may establish separate bank accounts specifically for Direct Debit payments to retain greater control over when funds collected. 

  • The benefits set out in the Consultation are already available to businesses that choose to use the payment method voluntarily. 

  • We have concerns about taxpayer confidence in HMRC's systems, the handling of errors and disputes, failed collections, and the adequacy of safeguards where problems arise due to HMRC or banking system issues.

  • If the proposals proceed, we do not support the introduction of penalties solely because a taxpayer uses an alternative payment method. Such penalties would be disproportionate and inconsistent with the objective of encouraging compliance. Existing late-payment penalties already address non-compliance. 

You can read the full ATT response to the Consultation here.